Specialty retailing name Williams-Sonoma said early this morning that third-quarter net income dropped 7.1% to $27.1 million, or 25 cents per share. The downturn in the housing market combined with other issues resulted in slowing sales demand. Revenue was up just 5% at $895.1 million, falling short of the company's own estimate, and same-store sales edged up 1.1%. Analysts were expecting per-share results of 24 cents on $896 million in revenue.

For the fourth quarter, company CEO Howard Lester noted that As we look forward to the fourth quarter, we are doing so with a heightened sense of caution due to our belief that the overall macro environment is having a greater impact on retail traffic than we previously anticipated. The company is still targeting a range of $1.19 to $1.25 per share but expects earnings to come in at the low end of this guidance range.

2007 earnings are expected to reach $1.84 to $1.90 per share, excluding items. This new outlook is slightly more narrow than an earlier range of $1.82 to $1.90. WSM also tightened its full-year sales outlook to reflect a range of $3.96 billion to $3.99 billion.

Analysts are looking for fourth-quarter earnings of $1.22 per share on $1.4 billion in revenue. Fiscal-year results are targeted at $1.85 per share on $3.97 billion in revenue.

In midday activity, WSM has pulled back 4.2%, breaching its 10-day and 20-day moving averages on above-average volume. The stock is less than $1 away from hitting a new annual low.